The COVID-19 outbreak is likely to affect loan projects of many Ukrainian borrowers in all industry sectors.
To minimize negative effects, to ensure that your financing arrangements are fine-tuned to the current circumstances, and to help your business to recover and grow once the situation improves, consider taking any of the following actions as may be applicable to your business. We are at your service to assist.
Review your Loan Agreements and Other Financing Documents
Review your loan and related documentation to determine the extent to which the pandemic and the related measures imposed by the authorities may affect the discharge of the borrower's, guarantor's/surety's and security providers' obligations both in the short term and in the long run. Pay attention to the following issues in the first place.
- Payment schedule: assess whether your company will be able to comply with the payment schedule
- Drawdown provisions: if your loan agreement provides for a revolving facility, review whether the coronavirus outbreak may trigger a drawdown stop event
- Repeated representations: check the frequency of repetition of representations and warranties and determine those which become or potentially become untrue or incorrect, thus creating a risk of adverse consequences
- Financial covenants: assess whether your business is and will be able to comply with the committed financial ratios and thresholds and whether the documentation includes any carve-outs that allow to adjust these indicators in your favor
- Project completion covenants: consider whether project completion milestones (e.g., construction completion or commissioning deadlines) are realistic in the current circumstances
- Material Adverse Effect (MAE): see how MAE is defined in your documentation and assess whether the coronavirus outbreak in Ukraine and in the jurisdictions of your group companies may trigger the MAE-related provisions
- Events of Default (EOD): identify which EODs may be triggered (breach of covenants related to continuity of business, financial ratios, MAE or material adverse change, change in law etc). Understand the potential consequences of specific EODs,/li>
- Loss of security: especially for pledges/security assignment of receivables under commercial contracts, review what effect disruptions or defaults in the performance of the underlying contracts (e.g., sale of products, delivery of raw materials or spare parts, performance of construction works etc.) may affect the existence and value of the security
- Situation of security providers: review whether the companies of your group that act as guarantors/sureties or third party pledgors/mortgagors are able to comply with the requirements of the financing documents
- Force Majeure: review provisions on contractual liability and force-majeure events in all project-related contracts to assess whether your counterparties may claim force majeure and how this would affect your project
- Supply Chain Risk: assess other elements of the supply chain risk (i.e. potential behaviour of commercial contract counterparties)
Protective and Remedial Actions
Based upon the above referenced review, you may decide taking the following risk mitigation or remedial actions.
- Waiver requests: your loan documentation may provide the borrower with the right to request the financing parties' grant of waiver of defaults or potential defaults, or to waive specific negative consequences of breaches (e.g., default interest payments). Waivers are normally case-specific and conditional, and at times require provision of additional security to financing parties, and must be carefully drafted and negotiated to avoid building up negative consequences instead of providing a relief
- Amendments: your loan documentation may be amended to provide carve-outs to MAE and material adverse change clauses; extension of maturity dates and payment schedule changes, introduction of interest holidays, adjustments of financial covenants etc. Timely and careful drafting and effective negotiation is key to success
- Restructuring: if your loan documentation review leads to the conclusion that the coronavirus outbreak may significantly impact your business and ability to perform payment obligations, then financial restructuring should be considered
We can efficiently assist you in performing the above referenced review and to apply the proper protective and remedial actions in a timely and cost-effective manner. Please contact us for any enquiries, preliminary assessment discussions or instructions. We are fully operational and ready to assist.